The success of an organization rests largely on the trust it creates with employees, customers, and the general public. According to a recent Gallup poll, “68% of adults globally and 60% of U.S. adults believe corruption is widespread among businesses in their country.”
It’s a bit disheartening to learn that over half of Americans might think poorly of your business, even if you’re one of the “good guys.” But how can you tell if your business really has integrity or if you just think it does?
Just like with everything else, you figure out how to measure it. Getting a read on the integrity of your business might be challenging, but it’s not impossible. Here’s how you can measure the integrity of your business and why you should invest in the practice.
What is Business Integrity?
Before you can measure and improve business integrity, you have to first define the term. It’s a good idea to get an understanding of what integrity isn’t. Specifically, it’s not doing something because you are under public scrutiny or because it makes you look good.
Integrity in business is doing the right thing even when no one is watching. It is behaving ethically and honestly under all circumstances, even those that might lead to financial and organizational harm.
It’s Not the Same Thing as Legal Compliance
The consequences of a lapse in integrity can be serious and far-reaching. Businesses can quickly become entangled in an endless web of bad press and litigation based on the actions or inaction of a few.
Such possibilities have led more organizations to develop corporate ethics programs to prevent and detect legal violations. These programs tend to emphasize compliance standards and procedures as well as outline a process for enforcement.
“If it’s legal, it’s ethical” is a common mantra, but one that is problematic from an organization committed to integrity. Legality doesn’t excuse acts that are considered indecent, unfair, inappropriate, or downright selfish by an organization or its leaders.
Why Measure Business Integrity?
As a business behaving without integrity is not a good look. Just a few of the major companies that have been exposed by unethical practices over the past few years include Boeing, Facebook, and McDonald’s.
In looking at the success of a company, the measure used to be profits. Companies still need to make money to stay in business and satisfy shareholders, but integrity has become increasingly more important as a measure of success. If you’re looking for reasons to measure business integrity, here are just a few.
- Gain knowledge and understanding - By measuring business integrity regularly and systematically, you will get a true picture and overview of the level of integrity within your organization.
- Establish benchmarks - Some type of integrity thermometer will give your business opportunities to benchmark different opportunities according to various targets or departments.
- Monitor the effectiveness of programs and measures - When you have objective measures in place, your organization can quickly spot inconsistencies between what is happening and your established policies.
- Satisfy employees - More than half (57%) of U.S. employees state that working for an ethical employer is “critical.” And 86% of American professionals are willing to give up some pay to work for an ethical organization.
- Build trust with consumers - Consumers want to know that you are walking your talk regarding integrity. Some organizations are already making lists of ethical companies on sites like EthicalConsumer and GoodOnYou. Implementing a way to measure your business’s ethical performance is a good start.
- Improve business results - What many organizations fail to recognize is that integrity is good for business. According to Ethicsphere, which ranks ethical companies worldwide, the 2021 World’s Most Ethical Companies outperformed a comparable list of large-cap companies by 7.1% over five years.
Is Business Integrity Measurable?
Business integrity seems like a tough thing to measure, doesn’t it? Some business leaders might refer to it as one of those “fuzzy” items that is nearly impossible to nail down. But others, including our own government, take a different view entirely.
A piece published a few years ago in Compliance Week discussed the necessity of measuring corporate culture as a means to improve it. According to Douglas W. Hubbard, the inventor of the Applied Information Economics method and an author in actuarial and decision sciences, anything can be measured. Hubbard explains that even things that don’t seem measurable are using a variety of strategies. For example, what would be the impact if your company didn’t take a certain action?
Even FINRA and the U.S. Justice Department are creating possible metrics related to cultural values and ethics & compliance matters. So, yes, you can measure business integrity. And you should undertake the exercise considering the potential benefits to your organization.
How to Measure Business Integrity
Any company can put a bunch of words in its annual report or mission statement to talk about its values. But if the organization isn’t exhibiting integrity in everything it does, those words have little depth and weight.
Customers, employees, and the public will ultimately judge a company by what it does, not the fancy ads or social media campaigns discussing values. How can you measure integrity within an organization? Here are some guidelines you can use to create your own framework:
Corporate Ethics and Compliance
Financial transparency and honesty is a basic expectation of customers, employees, and shareholders. When an organization “cooks the books,” whether intentional or not, the results are never positive.
You can measure how well your organization is aligned with a set of corporate best practices and regulatory guidance with respect to:
- Written Standards
- Program Responsibility, Structure, and Resources
- Communications and Training
- Program Auditing and Monitoring
- Discipline and Enforcement
Some of the questions you might ask and areas you can measure include:
- Does your organization have a formal and written Code of Conduct?
- In the past year, what percentage of employees have received formal training on the Code of Conduct?
- Does your company require conflict of interest disclosures or certifications from senior managers and non-employee directors?
- Does your company conduct background checks on all employees and new vendors?
- Does your organization have a formal process for reporting, tracking, and investigating concerns?
Culture of Ethics
Ethical standards in an organization are built based on respect for employees and a commitment to delivering maximum value to customers. When a business is committed to improving the lives of its stakeholders instead of activities aimed at self-gain or self-preservation, there exists a culture of trust and integrity.
Facebook undermined the public trust with its recent data sharing and privacy scandal. In contrast, the Tylenol crisis made a hero of Johnson & Johnson through its decision to institute a costly nationwide recall. Unfortunately, the company's global reputation has plummeted in recent years thanks to decisions it made relative to opioids and talc products, resulting in billions in legal settlements and judgments.
What’s the difference between the two, and how can you measure it? A culture of ethics demonstrates the extent to which your business promotes an organizational culture of integrity through its commitment to customers, employees, and any existing regulations.
Some questions that you might ask include:
- Does your company have a steering committee dedicated to integrity and ethics?
- If yes, how many c-suite and full-time employees serve on the steering committee?
- Do you measure employee perceptions of your organization’s ethical culture through periodic interviews, surveys, or focus groups?
- What is your employee’s level of engagement and awareness with respect to organizational integrity subjects?
Societal and Environmental Impact
Deloitte pointed out a few years ago that, “Stakeholders today are taking an intense look at organizations’ impact on society, and their expectations for good corporate citizenship are rising.” Customers and employees alike care more than ever that the organizations they support have a positive impact on society through corporate philanthropy and environmental stewardship.
Saying that you value the environment, or your community is no longer enough. Currently, most businesses are doing this as a matter of course. Customers and staff can see through marketing lingo. If you want to measure how you’re doing in this area, ask some of the following questions:
- Does your company conduct social responsibility and sustainability-related initiatives?
- How often does the company’s leadership receive formal briefings on these projects or initiatives?
- Does your organization engage external stakeholders regarding these initiatives to help direct the most positive strategy?
- Does your organization adhere to the United Nations’ Guiding Principles on Business and Human Rights?
- Is your company a founding member of any major international, national, or industry initiative related to corporate responsibility, citizenship, or sustainability?
- Does your organization have a formal community involvement strategy?
Leadership and Reputation
Leadership practices are the underlying foundation for organizational integrity. Whether it's a commitment to fair employment practices or outstanding customer service, your business’s reputation can suffer through unresolved product and service issues as well as how employees view your leadership team.
This category measures your organization’s ethical track record and reputation with respect to various customer service initiatives and any accolades or awards garnered by the business or its leaders. Some of the questions you can ask during this evaluation include:
- Outline any awards, honors, recognitions, or accolades your company or its leadership has received over the past several years related to your organization’s integrity, culture, corporate responsibility, ethics, or compliance.
- How is your senior leadership advancing the dialogue of integrity and ethics inside and outside your industry?
- How does your organization measure its reputation, and how has this figure changed over the past year?
Helping Your Business Show and Measure Integrity
One of the ways a business can demonstrate that they operate with integrity is by putting strong leadership in place that facilitates it. This is a culture that will permeate throughout the organization, influencing your internal reward structures, interactions with customers and suppliers, and your relationships with investors.
When your organization has leadership committed to integrity, it can identify priorities and goals to measure improvement. This framework will make it easier to reference issues related to business integrity in your regular reporting as well as quickly address any issues as they arise.
CFO Selections takes integrity in business seriously and believes that the integrity of the business leaders it works with is a vital component to the success of our clients. If your organization needs a CFO, contact us to learn more about our services.
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